Finland could serve as China’s Arctic gateway for Obor

Latvia might be another player in China's long-term rail-sea development vision

It was a meeting that could easily pass unnoticed. Chinese Premier Li Keqiang met with Finnish Prime Minister Juha Sipila on June 27 in Dalian, China, during the annual World Economic Forum meeting known as Summer Davos.

The upshot of their tete-a-tete was that China and Finland pledged to enhance bilateral cooperation in Arctic affairs and areas such as manufacturing and urbanization. Most important, Li told Sipila that China wanted to bolster communication with Finland in international and regional matters, specifically in the context of China-EU and China-Nordic cooperation.

The growing collaboration between the world’s second-largest economy and a small Nordic nation of 5.5 million people highlights a little-known fact: China’s One Belt, One Road (Obor) project has an Arctic angle. and Finland could play a pivotal role.

On the Finnish side, one of the most interesting proposals is for a €3 billion (US$3.4 billion) “Arctic Corridor” railway that would connect Northern Europe with China and Arctic Ocean deep-water ports. The idea is being pitched by a group of Finnish academics and business leaders. It would connect the city of Rovaniemi in northern Finland with the Norwegian port of Kirkenes on the Barents Sea.

Finland’s Arctic Corridor project. Illustration: Arctic Corridor

Ships could move goods from China as well as oil and gas from Arctic fields in Russia westward along the Northern Sea Route to Kirkenes. Cargos would be offloaded to the railway and sent southward through rail connections to Scandinavia, Helsinki, the Baltic states and the rest of Europe.

“The Arctic Corridor project sees Obor as very important as it provides an alternative to connect Asia with the Arctic and Europe,” Timo Lohi, a spokesman for the Arctic Corridor project, told Asia Times.

Lohi notes that Kirkenes in Norway is the closest Western port to Asia. The port is also ice-free, allowing the use of larger vessels and saving on icebreaking costs.

The Northern Sea Route, which runs along the Russian Arctic coast from the Kara Sea, along Siberia, to the Bering Strait, is assuming growing importance under Obor. Melting Arctic ice, in one example, makes it possible to ship gas by tanker from Russia’s huge $27 billion Yamal LNG (liquefied natural gas) project in Siberia, in which Chinese companies and development banks have hefty stakes.

Using the Northern Sea Route also lops an estimated 20-25% off the distance between Asia and Europe that use the Indian Ocean and the Suez Canal routes.

China’s rail freight angle

The Arctic Corridor railway could also be joined at the Finnish border to Russia’s rail network, which in turn connects with China’s. According to Lohi, this would enable Chinese freight to be transported to Europe by train. Such interconnected rail networks already allow goods to be delivered between the United Kingdom and China.

The Arctic Corridor project is at an early stage. Preliminary planning has started in Finland, and regional land use and other impact studies are under way. The plan will be discussed at Finland’s Kouvola Rail Forum in September. The planning process could take 10 years. Financing for the project is yet to be nailed down. But if cargo flows are sufficient, Lohi believes construction could begin by the early 2030s.

China is said to be aware of the project, though no official contact has been made. The Norwegian and Finnish transport ministries are also discussing how to cooperate on the effort.

Chinese financing for the Arctic Corridor is critical. European Union member Finland was battered by the 2008 financial crisis. Its economic growth still lags behind the rest of the euro zone, and various EU-related issues make it hard to secure other outside aid.

While Chinese interest in the project is uncertain, firms from China are already making hefty investments in Finland. China’s Sunshine Kaidi New Energy Group invested $1.13 billion in a new wood-based biodiesel plant in the northern city of Kemi. More Chinese investments are on the way.

In another gesture, Chinese President Xi Jinping paid his first state visit to Finland in April. Chinese media at the time noted that Finland in 1950 was one of the first Western nations to recognize China’s new Communist government.

What is more, Finland recently assumed the rotating chairmanship of the Arctic Council, an international body that Arctic littoral states including Russia and the US use to govern the Arctic. It will serve in that position until 2019, giving it leverage in Arctic matters of interest to China.

Latvia also a player

Finland isn’t the only prospective site for an Obor railhead. Another candidate is Latvia. Bordering Russia, it has well-developed cargo-shipping and rail-freight infrastructure dating to the Soviet era.

This was a factor when China opened an 11,000-kilometer direct freight route between Yiwu city in Zhejiang province and Riga, Latvia, last November.

Some observers say geography, logistics and expertise make Finland and Latvia the only logical choices for northern railheads that could serve Obor’s needs. In addition to airports and rails, Finland offers its capital port of Helsinki, while Latvia boasts the industrialized port city of Riga. Both nations, moreover, are EU members.

“Although there is currently no clear leader for establishing improved freight routes that connect China with Northern Europe, Finland and Latvia are emerging as the two favorites due to a combination of geographic, economic and logistical considerations,” said an April 6article in The Baltic Times.

Moving cargo by sea to Kirkenes from Russia and China is more attractive than hauling it overland by rail.

“The notion of shipping goods by land from Asia to Europe is not very practical and [is] expensive,” said David Dollar, a senior fellow at the Brookings Institution in Washington, DC. “Last year there were 20,000 containers from China that went by rail to Europe. You can put 20,000 containers on one ship. So I think shipping will continue to be the overwhelmingly economical way to ship goods.”

Challenges

On the downside, analysts say both Finland and Latvia need substantial infrastructure investments to participate effectively in Obor, highlighting the need for Chinese cash.

Adam Lajeunesse, an expert on Arctic security, sees other challenges. He cautions that the demand for northern infrastructure projects like the Arctic Corridor is still theoretical and faces serious hurdles.

For one thing, he notes that large-scale development of offshore oil reserves in Russia’s Arctic is not economic given current oil prices. He adds that oil’s dilemma will be made worse if Western countries make a serious transition to electric vehicles in the next 20 years.

“I think there’s a real possibility that none of the Russian Arctic offshore oil is ever developed,” said Lajeunesse, who holds the Irving Chair in Arctic Security at Canada’s St Francis Xavier University.

Tensions between the West and Russia also remain high. Lajeunesse says this could complicate collaboration on multinational infrastructure projects like the Arctic Corridor. He points out that Baltic and Scandinavian nations are especially wary of Russia in the wake of alleged Russian cyber-attacks and fighter probes of their airspace.

While China is interested in using the Northern Sea Route, Lajeunesse points out that the passage’s viability is sometimes overstated. “While the Chinese are interested in using it, it really is interest rather than enthusiasm,” he said. “Ice conditions are still difficult, and Russian fees and regulations have been cited by Chinese companies as a major hurdle to large-scale adoption.”